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In a new op-ed by Marc Scudillo of EisnerAmper WMCB, “Opinion: How higher taxes on the rich could affect your investment and financial goals,” Scudillo encourages everyone to put the proposed tax increases into perspective, and make a plan to mitigate taxation if the increases will affect you.

For instance, top marginal income-tax rates would only rise from 37% to 39.6%, which was the top rate prior to the 2017 tax cuts. The rate was already scheduled to revert to 39.6% in 2025.  Nobody likes to pay higher taxes, and the Biden administration is focusing on increasing taxes for high-income individuals and families, and corporations. According to the plan, households earning less than $400,000 annually most likely will not be affected in a significant way.

People who have more than $400,000 of annual household income should begin to think about a tax plan relative to their goals. If clients make more than $1 million in annual income, the tax plan reportedly being considered would definitely have an impact, including a near-doubling of the capital-gains tax rate to 43.4% from 23.8%.  Combine this with the lowering of the estate-tax exemption to $5.49 million from $11.7 million and many more clients may be impacted by these changes.


So, what can you do? Consider tax-advantaged investments and other ways to make your portfolio more tax efficient.

If these tax rates increase, there will be a higher focus to create greater tax efficiency in client portfolios.  Some investors may consider realizing long-term gains sooner before the capital-gains tax rates go up.  “Asset location” will become of more value; this is where client portfolios should have those assets with the highest tax consequences, like high turnover, located in tax-deferred retirement accounts.

For estate planning, some people may want to lock in the lower capital-gains rates for estate purposes.  If the “step-up” in basis is eliminated, realizing capital gains now may become another option for estate planning.  Yet for business owners whose largest asset will often be the value of the business, this may not be a viable option.  Expect to see an increase in the use of insurance to help business owners fund the estate taxes, especially if the exemption is reduced to $5.49 million per person.  To keep this in perspective, realize that estate taxes were already scheduled to revert to this level after 2025 and were at the same level in 2017.


Insurance, Annuities and ETFs.

Insurance will become a more interesting option not only for the estate benefits but also for the tax-favorable growth. The cash value of insurance grows tax-deferred, much like a traditional IRA or a 401(k) retirement account. As a policy’s cash value increases, the policyholder does not pay income taxes — unless they cash it out. Tax deferral can make a significant impact as the value grows over time.

The same concept can apply to annuities. One of the most common drawbacks with annuities are the expenses associated with the contract. However, annuities have become much more competitive for pure tax-deferral. They also have significantly increased the number of investment options offered. Another commonly cited disadvantage of annuities is the sacrifice of future growth of non-qualified annuities being treated as ordinary income versus long-term capital gains. This negative may need to be re-evaluated should capital gains rates be raised based on the client’s annual income and ordinary tax rate.

When compared to mutual funds, ETFs can be more tax efficient, often creating a lower tax liability than if a similarly structured mutual fund were held.

Proper planning will help an adviser and client decide if a single strategy to minimize taxes, a combination of strategies or no change at all will be optimal.


Read the entire article on MarketWatch here:


Marc Scudillo is the managing officer of EisnerAmper Wealth Management and Corporate Benefits LLC ( He is a certified public accountant and a Certified Financial Planner™ and Certified Business Exit Consultant®.